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Asian shares slip on weakened US rate cut wagers: markets wrap

Asian shares slip on weakened US rate cut wagers: markets wrap
The People's Bank of China in Beijing.

Asian markets opened lower following declines on Wall Street as new data weakened the case for imminent Federal Reserve interest rate cuts.

Equity benchmarks in Australia, South Korea and Hong Kong all fell over 1%. Mainland Chinese shares swung between gains and losses as the nation’s central bank left its key policy rate unchanged. Japan’s Topix benchmark nudged higher ahead of wage results due on Friday. 

The S&P 500 and Nasdaq 100 each slipped for a second session on Thursday with both benchmarks registering 0.3% declines. US futures were unchanged in Asian trading.

Treasuries steadied after selling off on Thursday with 10-year yields rising 10 basis points. The moves were driven by producer price index data that rose more than expected in February, echoing the higher than anticipated consumer price data earlier in the week. Together, the figures show the Fed’s work in quelling inflation is not complete.

Higher yields supported the greenback as the Bloomberg dollar index extended gains from the previous session. Elsewhere, the yen got a brief boost on Thursday from a report that the Bank of Japan may end its negative rate policy next week. The currency traded slightly weaker on Friday.

“The PPI, which moves ahead of the CPI, seems to have started to bottom out, weakening the prospect of a Fed rate cut,” said Nobuhiko Kuramochi, a market strategist at Mizuho Securities. “Japanese stocks are likely to continue to adjust its speed along with the US stocks.”

Japan’s largest union group will release the most closely scrutinized wage figures in decades. Strong numbers may be enough to nudge the BOJ toward raising interest rates for the first time since 2007. BlackRock Inc. and Man Group Plc. are among those seeing room for further gains in equities as economic vitality returns, while abrdn plc and Robeco are placing bullish yen wagers.

In China, state funds’ purchasing of exchange traded funds has showed signs of cooling after a $50-billion buying spree to support its equity market. Meanwhile, the country’s banking regulator has asked Hong Kong financial institutions to detail their holdings of local government financing vehicles’ debt.

The People’s Bank of China on Friday kept the rate on its one-year policy loans steady at 2.5%, as expected by most economists surveyed by Bloomberg.

Data due on Monday is expected to show year-on-year growth in China’s retail sales and industrial output slowed from December, based on surveys. The property sector still remains a major drag, raising doubts about the nation’s ability to gain momentum and hit an ambitious growth target of around 5%.

Fed’s dot plot

The Fed is expected to keep rates unchanged at the 19 – 20 March meeting for the fifth consecutive gathering. Coming on the heels of reports warning of persistently high inflation, the focus will be on the Fed’s new “dot plot.” The median forecast of legislators in December showed three quarter-point rate reductions for 2024.

“Equity and bond bulls are staring at their calendars and drawing a ‘big red circle’ around the 20th of this month,” said Jose Torres at Interactive Brokers. “Folks are concerned Powell may have to pull a dangerous U-turn during his ride on the monetary-policy highway. His dovish messaging since December has driven an intense loosening in financial conditions.”

The re-acceleration of inflation against the backdrop of still buoyant risk assets that includes record highs for stocks and Bitcoin are “very symptomatic of a bubble mentality,” warned Michael Hartnett, chief investment strategist for Bank of America Corp. Bitcoin advanced on Friday to trade at just under $72,000.

In commodities, oil held near a four-month high after the IEA forecast a supply deficit through 2024, changing its earlier projection of a surplus, on the premise OPEC+ maintains production cuts.

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